Abbott must set economic tone

The economic signs have augured well in the first six days of
Tony Abbott
’s prime ministership. Shares have had a good week, finishing back near their highest levels since mid-2008. Both business and consumer confidence ticked up as the poll approached, and the numbers of houses put up for auction climbed sharply over the weeks that a Coalition win began to look assured.

All of this has happened without Mr Abbott doing very much in public, testament to the effect of a few simple policy messages which helped him triumph over the erratic
Kevin Rudd
. The ‘purposeful, calm, methodical’ mantra which Mr Abbott repeated to his troops at the first Coalition party room meeting on Friday is all part of rebuilding trust in government after the soap opera of Labor in power. And the new government is unlikely to be seriously challenged before Christmas by a shellshocked Labor opposition that will spend at least the next month working out who will lead it.

But the new Abbott government needs to set its tone, direction and momentum early. The economy may have given the Coalition win an initial sentiment thumbs-up, but its deeper problems are not going to fix themselves.

There is plenty bequeathed to Treasurer
Joe Hockey
to concern him. Amid sliding employment, the 5.8 per cent jobless figure this week was the highest since May 2009 in the midst of the global financial crisis and is forecast to worsen to 6.25 per cent next year. Notwithstanding a sentiment uptick and the Coalition’s vow to reboot the resources boom, private capital spending is still likely to fall sharply. House prices may be up, but that has only brought worries that ultra-low interest rates are merely stoking an unsustainable asset price bubble, as the prudential regulator cautioned this week. Consumers are on strike with the weakest retail sector outlook in five years, with major store chain Myer also reporting this week a toxic mix of both offshore online sales competition and rapidly escalating penalty rates at home under Labor’s “modernised" awards.

Worst of all, the steam may be coming out of the mining boom faster than anybody had imagined. As revealed by AFR Weekend, that is leading Mr Hockey to contemplate pulling ­forward urban road spending to fill the economy’s growth gap even before fixing Labor’s $30 billion budget deficit. This will startle those who swallowed Kevin Rudd’s scaremongering that the Coalition’s budget austerity would plunge the economy into recession. Mr Hockey will likely contrast his budget stimulus as genuinely productivity-enhancing and growth-­sustaining, in contrast to Labor’s madcap spending on school halls and ceiling insulation. Yet most of these road projects are not shovel ready, or yet to get a full cost-benefit approval. It is not clear yet whether they will be accompanied by a longer term budget savings from his Commission of Audit to offset an infrastructure splurge.

Mr Hockey sees retail sales this Christmas as a critical test of confidence. Getting Australians spending again will depend on the government looking like it is getting its own spending in order: voters may not like cuts, but they know that deficits are the tax rises of the future unless outgoings are controlled.

But the Coalition’s biggest immediate task is to show it is ­serious about kickstarting productivity, cutting red and green tape, reducing the economy’s inflated cost structure and encouraging foreign investment. Sending an early signal on workplace flexibility would encourage businesses to invest in new capacity and to hire more staff. That, in turn, would support the jobs required to get consumers spending again.

Mr Abbott also will have to hose down an embarrassing party room split, with the Nationals using a bid by giant American grain trading house ADM for GrainCorp to block foreign buyers of rural assets. The prime minister needs to make it very plain right now that if Americans or anyone else wants to put their hard-earned money here, that is a plus not a minus.